NPLs turn alarming: Political lobbying power of the borrowers blamed
The non-performing loans (NPLs) in Bangladesh’s financial sector has increased by Tk 17,383 crore in 2022, allegedly due to the indifference of the government and Bangladesh Bank. The defaulted loans soared to Tk 120,656 crore at the end of December 2022 from Tk 103,273 crore in the same period of 2021. Despite promises from the government and the central bank to reduce default loans, the situation is deteriorating.
Of the total default loans, 88 per cent turned to bad loans which the central bank apprehended were not recoverable. Experts have expressed concern over the alarming and unstoppable surge in default loans, warning that it will have a devastating impact on both the banking sector and the economy. Most of these default loans were willfully taken, backed by the political, financial, and lobbying power of the borrowers. The Bangladesh Bank has been criticised for its failure to rein in the default loan and for not playing its regulatory role in addressing the massive irregularities in the sector.
A large portion of the defaulted loans had been laundered abroad because they were taken under anonymous names, making recovery impossible. The rising volume of non-performing loans is expected to have myriad adverse consequences, including destroying the trust of depositors, which is resulting in reduced deposit growth in the banking sector. Moreover, it has reduced the capacity of banks to provide loans to good borrowers.
There should be massive reforms in the banking sector to improve governance and reduce bad loans. Political will is essential for the reform to take place. Besides regulatory forbearance, the deterioration in the country’s economic situation has also affected the repayment capacity of some borrowers, leading to an increase in the volume of defaulted loans. We reiterated that the government reluctance to the loan defaulters or the high-ups connection to willful loan scams reached Bangladesh at the nadir of corporate governance in the banking sector.
